The Hindu Business Line : How they roll

THOUGH the domestic tyre industry has quite a few players, the top ones such as MRF, Apollo, Ceat, J. K. Industries and Bridgestone account for more than 70 per cent of the tyre market. While Bridgestone is an unlisted company, the shares of J. K. Industries have been suspended from trading owing to the ongoing restructuring exercise taken up by the company.

The share prices of other tyre majors such as Ceat, MRF and Apollo Tyres have settled at higher levels in the past six months. However, it remains to be seen how the market reacts to the financial performance for the quarter ended September 2003.

After reporting a drop in net profit, the share prices of Ceat, TVS Srichakra and Apollo Tyres have ruled weak in the last few days. The market leader MRF is yet to come up with its quarterly performance. However, taking into account the earnings trend recorded by Apollo and Ceat, MRF is unlikely to spring a surprise with a sharp growth in performance.

From an investment perspective, MRF and Apollo Tyres would qualify as top picks. The market leader status along with a low equity base, strong fundamentals and a presence across almost all segments of the tyre industry places MRF as the top bet in the industry. It would be a major beneficiary of any recovery in the replacement market demand. Long-term investors could contemplate equity exposures in the company at current levels.

Apollo Tyres has a major exposure to the replacement market of the truck and bus tyre segment. It also has a presence in the farm tyre market. It derives close to 83 per cent of revenues from the replacement market.

The company has also taken steps to enter into the original equipment segment. Despite being a relatively late entrant, Apollo has managed to make some headway in the passenger car radials segment. Taking into account the strong fundamentals, the efforts taken to acquire Modi Rubber and the technical collaboration with Continental AG of Germany, shareholders can remain invested. Price declines could be used to take fresh exposures in the company.

In the case of Ceat, the company has a presence in passenger car radials and two-wheeler segment apart from truck and bus tyres. In a recent move, the company has decided to acquire the natural rubber business of its group company — Harrisons Malayalam. This move would have positive impact for Ceat, especially in the context of the recent spurt in natural rubber prices. Taking into account these factors, Ceat could turn out to be a dark-horse bet in the tyre industry.

As for TVS Srichakra, two-wheeler tyres account for a major chunk of the turnover. The company has a major exposure to the OE segment and caters to almost all two-wheeler producers in the country. Unlike the other top companies, it has managed to avoid any serious dent to its earnings owing to the steady growth in motorcycle sales. However, growing competitive pressure in the two-wheeler tyre market along with the slowdown in growth rate of TVS Motor (the key customer) is a cause of concern. Shareholders could book profit. Evidence of increase in sales volume of TVS Motor could be used to take equity exposure at a later date.

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